The quality of our life depends upon the quality of the question we ask.
I think it's the same with trading also, successful traders ask better questions, and as a result, they get better answers. They get answers that help them to know exactly what to do in any situation to produce the results they desired.
Below are the 5 questions that will help you to stay focused and will make sure you do the right things.
1-Did I get in before the market broke?
One thing traders do that hurts them is to anticipate breakouts that never amount to anything. Instead of waiting for the market to break, they rush in to buy when it is at the top of its resistance level, hoping for the breakout. You shouldn’t anticipate a breakout every time the market approaches the support or resistance area, but you should be prepared to act if it does.
2-Am I getting in too late?
Suppose a breakout happens with a huge candle showing a 6-8% move. We always feel that if we don't act immediately, we could miss a great trade. It’s not always easy for a trader to walk away from a tempting trade, but this is the difference between a high probability trader and a low probability trader. You will be better off missing a few good trades while removing out the mediocre ones as you wait for the trades that have a higher probability with a better risk/reward ratio.
3-Did I use volume or any other indicator to see if the breakout was a high probability one?
To increase the probability of a breakout trade working, one can do a few things. By looking at different time frames to see the market more clearly, adding indicators such as the ADX or stochastics to time trades better, using volume to see if a move is substantiated, or adding filters to keep from rushing into a trade, one can improve the odds of capturing a breakout.
4-How much room does it have to go?
When a market breaks out of a trading range, a trader should try to estimate the potential move so that he can measure the risk if the trade goes sour. Without a good mix between the two, no trade should be taken. It doesn’t make sense to make a trade with a 100rs potential profit but with a chance of losing 300rs. You need to have realistic ideas on how much each market or stock can give you or cause you to lose on a trade. Use the size of the previous wave, range, or congestion to measure the next move.
5-Should I wait for a retracement?
By waiting for the market to test the old resistance line at Point Y one can make a higher probability trade than by chasing it at point X.
By waiting for retracement you can trade with a better risk-reward ratio.
Sometimes when the volume is strong, the initial move can be stronger and the chances of it retesting the breakout level are diminished, and so one has to let go of that trade. Your goal should be to take the trade with a better risk-reward ratio.
Short Summary
1-Be prepared to do something when the market approaches a potential breakout area.
2-Use other indicators to help determine the chance of a breakout working.
3-Use the size of the previous wave, range, or congestion to measure the next move.
4-If the current R: R is good then enter & if not then wait for the pullback.
I think it's the same with trading also, successful traders ask better questions, and as a result, they get better answers. They get answers that help them to know exactly what to do in any situation to produce the results they desired.
Below are the 5 questions that will help you to stay focused and will make sure you do the right things.
1-Did I get in before the market broke?
One thing traders do that hurts them is to anticipate breakouts that never amount to anything. Instead of waiting for the market to break, they rush in to buy when it is at the top of its resistance level, hoping for the breakout. You shouldn’t anticipate a breakout every time the market approaches the support or resistance area, but you should be prepared to act if it does.
2-Am I getting in too late?
Suppose a breakout happens with a huge candle showing a 6-8% move. We always feel that if we don't act immediately, we could miss a great trade. It’s not always easy for a trader to walk away from a tempting trade, but this is the difference between a high probability trader and a low probability trader. You will be better off missing a few good trades while removing out the mediocre ones as you wait for the trades that have a higher probability with a better risk/reward ratio.
3-Did I use volume or any other indicator to see if the breakout was a high probability one?
To increase the probability of a breakout trade working, one can do a few things. By looking at different time frames to see the market more clearly, adding indicators such as the ADX or stochastics to time trades better, using volume to see if a move is substantiated, or adding filters to keep from rushing into a trade, one can improve the odds of capturing a breakout.
4-How much room does it have to go?
When a market breaks out of a trading range, a trader should try to estimate the potential move so that he can measure the risk if the trade goes sour. Without a good mix between the two, no trade should be taken. It doesn’t make sense to make a trade with a 100rs potential profit but with a chance of losing 300rs. You need to have realistic ideas on how much each market or stock can give you or cause you to lose on a trade. Use the size of the previous wave, range, or congestion to measure the next move.
5-Should I wait for a retracement?
By waiting for the market to test the old resistance line at Point Y one can make a higher probability trade than by chasing it at point X.
By waiting for retracement you can trade with a better risk-reward ratio.
Sometimes when the volume is strong, the initial move can be stronger and the chances of it retesting the breakout level are diminished, and so one has to let go of that trade. Your goal should be to take the trade with a better risk-reward ratio.
Short Summary
1-Be prepared to do something when the market approaches a potential breakout area.
2-Use other indicators to help determine the chance of a breakout working.
3-Use the size of the previous wave, range, or congestion to measure the next move.
4-If the current R: R is good then enter & if not then wait for the pullback.
